G.R. No. 142435, 30 April 2003
Petitioners, the spouses Alfredo Lipat and Estelita Burgos Lipat, owned “Bela’s Export Trading” (BET), a single proprietorship engaged in the manufacture of garments for domestic and foreign consumption, which was managed by their daughter Teresita B. Lipat. The spouses also owned the “Mystical Fashions” in the United States, which sells goods imported from the Philippines through BET, managed by Mrs. Lipat.
In order to facilitate the convenient operation of BET, a special power of attorney was executed appointing Teresita Lipat to obtain loans and other credit accommodations from respondent Pacific Banking Corporation (Pacific Bank) and to execute mortgage contracts on properties owned or co-owned by her as security for the obligations. By virtue of the special power of attorney, a loan was secured for and in behalf of Mrs. Lipat and BET, a Real Estate Mortgage was executed over their property.
BET was then incorporated into a family corporation named Bela’s Export Corporation (BEC) engaged in the business of manufacturing and exportation of all kinds of garments and utilized the same machineries and equipment previously used by BET. Eventually, the loan was later restructured in the name of BEC and subsequent loans were obtained with the corresponding promissory notes duly executed by Teresita on behalf of the corporation. BEC defaulted in payments when it became due and demandable. Consequently, the real estate mortgage was foreclosed and was sold at public auction to respondent Eugenio D. Trinidad as the highest bidder.
The spouses Lipat filed a complaint alleging, among others, that the promissory notes, trust receipt, and export bills were all ultra vires acts of Teresita as they were executed without the requisite board resolution of the Board of Directors of BEC. They also averred that assuming said acts were valid and binding on BEC, the same were the corporation’s sole obligation, it having a personality distinct and separate from the spouses.
The trial court ruled that there was convincing and conclusive evidence proving that BEC was a family corporation of the Lipats. As such, it was a mere extension of petitioners’ personality and business and a mere alter ego or business conduit of the Lipats established for their own benefit. The Lipats timely appealed which however, was dismissed by the appellate court for lack of merit.
Hence, this petition.
Whether or not the doctrine of piercing the veil of corporate fiction is applicable in this case.
Petitioners’ contentions fail to persuade this Court.
A careful reading of the judgment of the RTC and the resolution of the appellate court show that in finding petitioners’ mortgaged property liable for the obligations of BEC, both courts below relied upon the alter ego doctrine or instrumentality rule, rather than fraud in piercing the veil of corporate fiction. When the corporation is the mere alter ego or business conduit of a person, the separate personality of the corporation may be disregarded. This is commonly referred to as the “instrumentality rule” or the alter ego doctrine, which the courts have applied in disregarding the separate juridical personality of corporations.
We find that the evidence on record demolishes, rather than buttresses, petitioners’ contention that BET and BEC are separate business entities. Note that Estelita Lipat admitted that she and her husband, Alfredo, were the owners of BET and were two of the incorporators and majority stockholders of BEC. It is also undisputed that Estelita Lipat executed a special power of attorney in favor of her daughter, Teresita, to obtain loans and credit lines from Pacific Bank on her behalf. Incidentally, Teresita was designated as executive-vice president and general manager of both BET and BEC, respectively. We note further that:
(1) Estelita and Alfredo Lipat are the owners and majority shareholders of BET and BEC, respectively;
(2) both firms were managed by their daughter, Teresita;
(3) both firms were engaged in the garment business, supplying products to “Mystical Fashion,” a U.S. firm established by Estelita Lipat;
(4) both firms held office in the same building owned by the Lipats;
(5) BEC is a family corporation with the Lipats as its majority stockholders;
(6) the business operations of the BEC were so merged with those of Mrs. Lipat such that they were practically indistinguishable;
(7) the corporate funds were held by Estelita Lipat and the corporation itself had no visible assets;
(8) the board of directors of BEC was composed of the Burgos and Lipat family members;
(9) Estelita had full control over the activities of and decided business matters of the corporation; and that
(10) Estelita Lipat had benefited from the loans secured from Pacific Bank to finance her business abroad and from the export bills secured by BEC for the account of “Mystical Fashion.”
It could not have been coincidental that BET and BEC are so intertwined with each other in terms of ownership, business purpose, and management.
Apparently, BET and BEC are one and the same and the latter is a conduit of and merely succeeded the former. Petitioners’ attempt to isolate themselves from and hide behind the corporate personality of BEC so as to evade their liabilities to Pacific Bank is precisely what the classical doctrine of piercing the veil of corporate entity seeks to prevent and remedy.
In our view, BEC is a mere continuation and successor of BET and petitioners cannot evade their obligations in the mortgage contract secured under the name of BEC on the pretext that it was signed for the benefit and under the name of BET. We are thus constrained to rule that the Court of Appeals did not err when it applied the instrumentality doctrine in piercing the corporate veil of BEC.
Wherefore, the petition is denied.
*Case digest by Radolf Zell Adasa JD-IV, Andres Bonifacio Law School, SY 2019-2020